By Anant Chandak
BENGALURU- The Reserve Bank of India (RBI) is expected to cut interest rates by a modest 50 bps over the next six months, according to a majority of economists in a Reuters poll who said it would likely wait until December to start rather than move in October.
Inflation held below the RBI’s medium-term target of 4.0 percent for a second month in August. While it is expected to rise a bit in coming months, it has held in the 2 percent -6 percent comfort zone for nearly a year and was expected to stay there through mid-2026.
Most economists said the RBI would not be led to follow up quickly after the US Federal Reserve’s 50 basis-point cut this month, thanks to a strong domestic economy and a stable currency.
Median forecasts for the repo rate have not changed in Reuters polls taken since April.
Over 80 percent of economists, 63 of 76, in a Sept. 17-26 Reuters poll predicted the RBI would hold the repo rate at 6.50 percent at the conclusion of its Oct. 7-9 meeting. Twelve forecast a 25 basis-point cut, while one anticipated a drop to 6.15 percent.
The RBI has held the repo rate steady since February 2023, focusing on maintaining a tight trading range for the rupee through direct intervention in the FX market.
“The reason why the RBI will not be in a hurry, unlike the Fed who had to go for a cut, is because the Indian economy is still on a very strong wicket,” said Suman Chowdhury, economist at Acuite Ratings.
“With…food inflation showing signs of coming down and for the next few months likely to behave better compared to last year, I see the likelihood of the cut in December,” he added.
Governor Shaktikanta Das reiterated recently that it was important to “not get carried away by some dips in inflation,” leading several to conclude it would take a few more readings of benign inflation to give the RBI enough confidence to cut rates. – Reuters
